Most attempts to explain land prices assume free competition between suppliers and demanders of land. If there are constraints on this competition (e.g. land-use planning) this is added as a modification to the theory. When, however, the supply of building land is in the hands of public agencies, which determine the volume and price of supply specified by land use and location, a different theoretical approach is needed. In this situation, certain economic principles apply which determine the maximum and minimum prices at which land will be bought for development and at which serviced building land will be supplied for development. However, both the limits of this range and the actual land prices within it will depend on political choices made by the public agencies. In the Netherlands, municipalities dominate the supply of land for development and redevelopment. Information about the way Dutch municipalities make the political choices and about the actual land prices there, suggests they make the political choices in a consistent way: they see themselves as suppliers of a public utility, namely building land. They try to supply so that there is never any scarcity, so that quality is high, so that prices no more than cover costs. The resulting prices might not be low, but they represent good value for money, because no-one reaps development gains directly. These are low because disposal prices are lower than could be realised, or development gains are absorbed in providing either a better quality of land servicing or more land for social uses.
Most studies of land policy, in the abstract and when applied to a country and to comparisons between countries, use a theoretical framework which is derived, ultimately, from Ricardo's land price theory. This is used to predict the effects and the incidence of the costs and benefits which result from applying land policy instruments. This article begins by comparing land policy in Israel and the Netherlands in that way. Both countries have a highly sophisticated and integrated set of land policy instruments. However, some very important differences between the effects of applying those instruments in the two countries cannot be explained within that framework. In particular, in the Netherlands, the development value of land is low and development gains small-in stark contrast with Israel. A supplementary framework is needed, and this is given by the stock adjustment model applied to housing. With this, the difference between the two countries can be explained as being the result of differences in the way the instruments are applied to influence the amount of housing supplied. The Ricardian theory and the stock adjustment model can be combined into one framework that relates land policy to housing production. The key variable in this relationship is the type of land development process that dominates in a country. Whether this process is carried out by a private or a public body can affect the volume of production, and hence the price, of housing. This adds a new element to the discussion about the relationships between planning, land supply and house prices.
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